Wednesday, February 16, 2011

50 Neoclassicists and a Keynesian

The problems in Wisconsin illustrate a rather difficult point for economic stimulators in Washington: They're surrounded by 50 governments that have to balance the books. There you are trying to goose the economy with Keynesian medicine, and the states are running in the opposite direction. They have to. They have balanced budget requirements in their constitutions and on the books. Spending has to be cut, and you can't make up for it with the electorate by giving everyone a tax cut.

The Federal government doesn't know whether to pursue expansionary fiscal policy or not. On the one hand they cut taxes (expansionary) and on the other hand are newly converted deficit hawks. At least by Washington standards. If I ever cut the projected growth of our household budget and tried to sell it to my wife as a budget cut, she'd laugh at me and take away my TV watching privileges. Or at least she'd block MSNBC.

Whichever policies the states are pursuing, they're emphatically not the policy Obama would like.

1 comment:

Wow! I came across your blog as result of reading one of posts in the Wash Times and read your blog. And was jealous: And that is because you make important points with simplest of language that even a knee-jerk liberal might understand but of he.she course would use dissonance reduction to evade. And not only to you make your points but there is a pleasant informality to it as if you are talking to a friend on the porch.